Tue, 15 Aug 2000

BI official expects SBI rate to fall this week

JAKARTA (JP): Bank Indonesia senior deputy governor Anwar Nasution expects the benchmark interest rate on Bank Indonesia one-month SBI promissory notes to decrease at the weekly auction on Wednesday.

Anwar said the condition was ripe for the interest rate to drop.

"There have been signs for the (SBI) interest rate to drop," Anwar announced following a meeting with senior economic ministers.

"We hope that the condition continues to improve so that the interest rate can further decrease," he added.

He said the near completion of the country's bank recapitalization program was crucial to reducing interest rates.

The government has completed the bank recapitalization program with the exception of Bank Bali, which is expected to be completed next month.

The central bank allowed the benchmark interest rate to increase over the past couple of months amid the weakening of the rupiah. But the interest rate on one-month SBIs was unchanged last week at 13.52 percent.

Analysts have said that the recent strengthening of the rupiah was a primary factor for Bank Indonesia to allow the interest rate to remain the same or decrease.

The interest rate on three-month SBIs dropped to 13.29 percent last week from 13.49 percent previously.

The central bank said earlier that it wanted to see the benchmark interest rate at about 12 percent by the end of this year.

A rise in SBI rates would increase the burden on the state budget to finance the payment of interest on government bonds issued to help finance the country's bank recapitalization program. Some of the bonds carry variable interest rates linked to SBI interest rates.

Asked on the direction of the rupiah, Anwar said that he expected the local currency to strengthen amid the improving domestic political climate.

"Looking at the economic fundamentals, there's no reason for the rupiah to weaken," he said.

Anwar said that the move by the central bank to curb speculators by sending its inspectors to foreign exchange banks to make sure they abide by the existing prudential rulings had been effective in stabilizing the local unit.

Anwar warned recently that foreign currency dealers and bankers who violated the ruling would be deported. He added that local bankers found guilty would be banned from entering the country's banking industry for the rest of their lives.

The rupiah has been strengthening since Wednesday last week amid easing political tension between President Abdurrahman Wahid and the country's top legislators.

The local unit continued to strengthen on Monday to close higher at about Rp 8,200 per U.S. dollar in late trading compared to Rp 8,345 per dollar on Friday.

The rupiah dropped to a 21-month low of Rp 9,570 per dollar last month amid political uncertainty. (rei)